Regulation and Financial Disclosure: The Impact of Plain English

34 Pages Posted: 13 May 2008 Last revised: 15 Oct 2013

Tim Loughran

University of Notre Dame

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance

Date Written: October 15, 2013

Abstract

In October 1998, the SEC implemented a rule requiring firms to use plain English in their prospectus filings. In addition to the rule, the SEC encouraged the use of plain English in all filings and communication with shareholders. Did the SEC rule significantly impact managers’ disclosure style? And, more interestingly, did the SEC’s recommendations lead managers to change their disclosure style in filings not under the plain English mandate? Our textual analysis of Form 424, IPO prospectus, and 10-K filings over 1994-2009 finds that the SEC’s implementation of the plain English rule substantively impacted managerial behavior. When we focus on 10-K filings, we find that after the 1998 rule, firms are more likely to improve the stylistic components of their filing before an equity issuance and firms with better corporate governance policies are more likely to comply with the rule.

Keywords: Plain English, market regulation, disclosure, textual analysis

JEL Classification: G12, G14, G18, M41

Suggested Citation

Loughran, Tim and McDonald, Bill, Regulation and Financial Disclosure: The Impact of Plain English (October 15, 2013). Forthcoming, Journal of Regulatory Economics. Available at SSRN: https://ssrn.com/abstract=1131643 or http://dx.doi.org/10.2139/ssrn.1131643

Tim Loughran

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Bill McDonald (Contact Author)

University of Notre Dame - Mendoza College of Business - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

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